The Obama Rate of Growth
The New York Times recently carried an interesting article that reveals something important about the cultural impact of economic growth.
The author, of mixed Indian and American descent, describes the cultural difference he used to see between his two home countries--and how that difference has disappeared. Today, with a growing number of young, middle-class Indians shopping in Western-style malls and ambitiously pursuing all the opportunities of a vibrant economy, he describes how India has changed from a country "straitjacketed by its moralistic rejection of capitalism, by a lethargic and often depressive fatalism," to one "infused with an energy, a can-do ambition and an entrepreneurial spirit that I can only describe as distinctly American."
This is very striking for a number of reasons. Indians used to talk derisively about the Hindu Rate of Growth, where India seemed to be stuck compared to other developing nations, so that several generations of talented young Indians had to go overseas if they wanted to make something of themselves. The phrase "Hindu Rate of Growth" was originally supposed to indicate that the "depressive fatalism" of the Hindu religion was the cause, and relatively low growth was the effect. But the actual culprit was socialist central planning and fanatical protectionism. What India has actually demonstrated, since a sweeping set of free-market reforms in 1991, is that economic stagnation was just as much the cause of the depressive fatalism, and that economic growth can now be the cause of "can-do ambition." An individual's personal experience with his own economic circumstances colors his view of the world as a whole.
I am happy that the people of India can now experience the culture of growth and opportunity that we have long taken for granted. As the pro-free-market Indian writer Gurcharan Das put it, "The ascent of a country from poverty to prosperity, from tradition to modernity, is a great and fascinating enterprise." But what haunted me in reading this story is the question of whether this "can-do" attitude still dominates in America, and for how long.
If it does, it is left over from before the Great Recession, because unbounded opportunity is no longer the rule in a land of seemingly permanent 8-10% unemployment and 1-2% growth. If this is no longer the land of unbounded opportunity, how long will it be the land of unbounded optimism?
There has been a lot of discussion recently in political circles about how the state of the economy will affect the election. Will the recovery help Obama and hurt Republicans? After all, what can the Republicans campaign on, if the economy is growing again?
But that misses the most important point about this recovery. The point is not merely whether we're recovering or expanding. The point is the rate at which we are doing so. This is not just a complaint that we're not recovering fast enough. Rather, the question is whether we will ever really recover, whether we will ever make up for the years we lost to the recession, and whether we will ever return to an era in which strong economic growth is the norm.
All of this is encapsulated in one chart linked to by James Pethokoukis. He presents 13 charts that make the case against Obamanomics, but by far the most important is this one. This chart, by itself, ought to rouse the nation into a state of crisis, because it is not just about economics. It is about what the new economics of the Obama era will do to the nation's soul.
The chart shows long-term economic growth since World War II, which follows a steady long-term trendline of about 3% growth. This is not roaring, by any means, but it means that the size of the economy doubles roughly every 20 years. That adds up over a lifetime, creating a sense that open opportunity and steady progress are the normal condition of human life. There were recessions, to be sure, but on a 60-year timescale, they are small and temporary departures from the trendline. Growth might dip for a year or so, then rebound at an accelerated rate for a few years. (Or for more than a few years, during the Reagan era; call that the Reagan Rate of Growth.) By then the gap would be made up and we would end up back on the same long-term growth line. The post-war recessions were short, temporary setbacks that didn't knock us out of an overall, long-term arc of upward progress.
Then along comes the Great Recession. It pulls us well below the trendline and keeps us there for a couple of years, until we get the recovery--such as it is. But unlike every other post-war recovery, there is no period of accelerated growth to make up for all of those lost years. Instead, growth resumes at a rate significantly lower than the post-war trendline.
In affect, this is not so much a recovery as it is a historical break from one long-term trendline of growth to another, lower long-term trendline.
Call it the Obama Rate of Growth.
President Obama has been trying to create a European-style welfare state, and he has definitely created the same economic conditions that hold sway in those states: permanent high unemployment and permanent slow growth.
I could dwell at length on all of the reasons for this lower rate of growth. Suffice to say that the defining characteristic of Obama-era economic policy is government "stimulus," while the defining character of its result is economic lethargy. That's why I call this the Stimulus Depression. But for our purposes today, let's look at the consequences of this new low-growth economy.
A symptom and symbol of the Obama Rate of Growth is the Bernanke Interest Rate, which is roughly zero. The basic interest rate in the economy establishes the basic economic value of an individual's savings. Ben Bernanke's decision to take interest rates to zero and keep them there indefinitely tells us: there will be no rate of return. Your money will stagnate just as the economy stagnates.
The Obama Rate of Growth creates endless, intractable practical problems. The only hope of getting out of the deep pit of government debt that we have dug over the past few years is to grow ourselves out. The same goes for the big middle-class entitlements like Social Security and Medicare. As a massive wave of Baby Boomers retires, the only conceivable way to support the promises our politicians have made is to grow fast enough to outpace the growth of entitlement spending. A low-growth society simply cannot catch up with all of the Boomers going into retirement and expecting decades of economic support.
That is the real root of the European economic crisis. It is the reason countries like Greece have ended up in economic collapse, and it's the reason we're headed in the same direction. From one perspective, it's a crisis of too much debt. From another perspective, it's a crisis of too little growth.
But the example of Greece raises a much deeper question. What does the low-growth economy do to our national character?
Can-do optimism, relentless innovation, and entrepreneurial risk-taking have been the hallmarks of American society since our founding. They are what made us the greatest power in the world and the greatest place in the world to live. There has been a lot of debate recently about "American exceptionalism." Well, this is what made us exceptional.
But a few more years, or worse, a whole "lost decade" of the Obama Rate of Growth threatens to finish off the American spirit.
What has struck me about the crisis in Greece, and in other European welfare states, is the sight of young people marching in the streets of Athens or Paris angrily protesting about cuts to their old-age pensions. The average young American hasn't even begun thinking about his retirement, and this is not just carelessness. He hasn't begun thinking about it, because he is too focused on what he wants to accomplish in the here and now, during his working years. He is focused on the career he wants to pursue and the steps he is taking toward becoming successful at it. This is the orientation of someone who believes in a growing economy, and who believes he can grow along with it. It is the attitude of someone who believes that more is possible out of life than just keeping an office chair warm while you wait to be old enough to collect your government pension.
It is the attitude of a society that is still alive, and if we want to keep it that way, we cannot resign ourselves to a lifetime of economic paralysis. We must defy the depressive fatalism of the Obama Rate of Growth, and overturn the policies that have given us this ugly period of national stagnation.